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PERTH (miningweekly.com) – ASX-listed gas developer Sunbird Energy on Wednesday announced the execution of a gas sales term sheet with South African power utility Eskom, over its planned Ibhubesi development, off the country’s West Coast.

Under the term sheet executed with Eskom, the planned Ibhubesi project would deliver up to 30-billion cubic feet a year of gas to the Ankerlig power station, near Cape Town, for a period of up to 15 years.

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Sunbird executive director Andrew Leibovitch told Mining Weekly Online in Perth that the Eskom offtake would account for 100% of the planned production from Ibhubesi, with first delivery scheduled for late 2018, subject to the timely development of the project.

“We have an indicated price range established as part of the term sheet, but a final price for the gas will be part of the gas sales agreement negotiations,” Leibovitch added.

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Sunbird chairperson Kerwin Rana said the signing of the gas sales agreement term sheet was a significant advancement in the commercialisation of the Ibhubesi project.

“The delivery of gas from South Africa’s largest proven gas field provides for a secure, cleaner and significantly lower cost fuel to Ankerlig while assisting in the development of the Orange basin and the creation of a new industry and much needed jobs.”

The development of the Ibhubesi project was expected to provide the critical first gas production and pipeline infrastructure on South Africa’s West Coast, establishing new industries in upstream, petroleum exploration and development, and a new energy supply for downstream power generation, major industry and domestic uses.

Leibovitch added that since the introduction of the project, Sunbird had undertaken several conversations with other active and potential players in the industry, including those in the upstream, infrastructure and financing sectors.

Sunbird had previously revealed plans to fast-track the commercial development of its Ibhubesi gas project, which has a maiden reserve of 540-billion cubic feet. The initial phase of Ibhubesi, which is located 380 km north of Cape Town and 105 km offshore, could involve an investment of between R12-billion and R14-billion to produce 28.3-billion cubic feet of gas yearly over an initial six- to eight-year horizon.

Eskom’s tight power system has resulted in the above-budgeted use of the 1 332 MW Ankerlig and 740 MW Gourikwa open-cycle gas turbine (OCGT) power stations. These plants are designed to operate for about three hours a day during peak periods, but are at times operating for up to 12 hours a day.

To help save on the cost of burning expensive diesel, Cabinet has ordered Eskom to fast-track its programme of substituting diesel with gas at the OCGTs.

Eskom spent R10.5-billion on diesel in 2013/14 to fuel Ankerlig and Gourikwa, which together consumed 661 000 ℓ/h. This compares with the R5-billion spent in the prior year. It was also substantially more than the R2.5-billion that the National Energy Regulator of South Africa had set aside for diesel purchases in its revenue determination for the 2013/14 financial year.

Eskom has indicated that it was likely to spend a similar amount on diesel in the 2014/15 financial year, against an approved OCGT cost allocation of R2.7-billion.